Closing Costs

Back with our special “Show Me the Money!” All about your money, your real estate – and you!

We’re going to wrap up this hour of the show with a little talk about buying a house.

You know, when people talk about getting ready to buy, they often head – well, you can get a good mortgage with just 3% down.

And that’s true. But – that’s not the end of the story. Because if you have a 3% down payment saved up, but nothing else? You probably won’t get the house. Because to qualify for the home loan, yes, you’ll need that down payment, but also, money for two other things – closing costs, and reserves. As in, money in the bank.

Let’s talk about that now, so that you won’t be disappointed, down the road.

As you know by now, you do not need a 20% down payment to buy a house. Sure, do it if you can, but good home loans are available with as little as 3% down. OK? So, for a $300,000 house, that’s a $9,000 down payment. Not bad, right?

But also, plan to have at least another 3% ready, for your closing costs. That’s another nine grand. So that brings the total amount of cash you’ll need at the closing table up to around $18,000.

Closing costs are different from the down payment. The down payment goes towards the price of the house. But closing costs go towards the price of the transaction.

Let’s look at what you’re actually paying for, when you pay closing costs.

One of the biggest expenses is title insurance. That’s an actual insurance policy that protects you from a lot of potential problems. Say that there was someone who was a part owner of the house, and it was sold without his knowledge. Or if a contractor did lots of work on the place and never got paid. Those issues could give them claim to the title of your new house….title insurance protects you from all that. And it’s not an option if you’re getting a mortgage – the lender will require it, because it covers their investment too.

Also, you will find taxes included in your closing costs. Say that the taxes on the house are two thousand dollars a year. If you buy it July 1, you’ll be responsible for one thousand dollars in taxes, to cover the rest of the year.

Also, if there are condo fees, or homeowners association fees, again, you’ll have to pay your share, as of the day you own the house.

Your lender may have had an appraisal done on the house. That’s something you pay for…and it may be rolled into your closing costs at the settlement table.

So it’s a lot of money, but as we said, we want to make sure you know exactly what you’re getting into.

But here’s the good news…you might be able to get the seller to pay your closing costs. It’s not guaranteed, but it does happen a lot. Talk to your REALTOR® and about how to try that – in the area you’re buying a house.

Now…on top of the down payment and closing costs, there’s one more thing you’ll need – reserves.

Lenders get nervous when a homebuyer is wiping out every dollar in their savings account just to get in the house. And when a lender’s nervous, they tend to say no to a home loan.

What they’d rather see…is that after paying for the down payment and the closing costs, that you’ll still money in the bank. Say, enough to pay your expenses for three, to six months. That lets them know you have a buffer….and if something unexpected happens, you’ll be able to still pay your bills.

So there you are. The down payment….plus closing costs….plus reserves. No surprises.